The Department of the Treasury and IRS have announced that, starting Jan. 1, 2024, buyers of eligible plug-in hybrids and electric vehicles can receive their federal tax credit at purchase. Under the existing rules, those buyers had to wait until filing taxes for the year in which they purchased the car.

Under the new guidelines, dealerships must first register with the IRS. Shoppers purchasing a vehicle from a registered dealer will then be able to transfer the tax credit to the dealer, thereby directly lowering the initial purchase price. The IRS expects to issue the payment to the dealer within 72 hours of the sale.

Buyers will not be required to transfer their credit to the dealer. If they choose not to, the process of claiming the tax credit will remain the same as it is under the existing protocols. The Treasury Department also noted that payments issued to dealers will not be treated as a tax credit to the dealers and therefore will not affect their tax liability. The payment from the dealer to the consumer also will not be counted as income for the consumer, so their tax liability will not be affected, either. However, if the buyer takes the credits and their income exceeds the federal tax credit’s thresholds for both the year of purchase and the year prior, they will need to repay the credits come next tax season.

The updated guidelines affect only the timing of the payment to purchasers; other aspects of the Inflation Reduction Act EV tax credit remain unchanged. The credit for new EVs maxes out at $7,500, and buyers of used vehicles can claim up to $4,000.

The exact amount of the credit is based on where the vehicle and its battery pack are assembled and where critical materials for the battery are sourced. The credits are only available on new cars with a sticker price of less than $55,000 and trucks or SUVs with a sticker below $80,000; used EVs can’t have a sale price of more than $25,000. Income limits of $150,000 for single filers, $300,000 for those filing taxes jointly and $225,000 for the head of a household also remain in place.

The IRS expects to reimburse dealers who transfer advance payments for clean vehicle tax credits “on the hood” within 72 hours of submission via electronic payment. Additionally, Treasury said that consumers – as opposed to dealers – will be responsible for attesting to their income for the purpose of determining eligibility for clean vehicle tax credits. This information should allay the biggest dealer concerns with their role in facilitating advanced clean vehicle tax credits to consumers at the point of sale starting in January 2024.

The information regarding the EV tax credit advance payments was part of an announcement from the Treasury Department which is available here. The announcement contained other information regarding the implementation of the EV tax credits; for instance, details about how dealers will register with the IRS via the portal. As a result of this guidance, the IRS updated the frequently-asked-questions (FAQs) for the clean vehicle credits.